Galaxy 14 to extend HD satellite distribution

August 17, 2005

Galaxy 14, a new PanAmSat HDTV satellite, blasted off Aug. 13 from the Baikonur Cosmodrome in Kazakhstan, delivering the second of three new satellites into orbit to distribute HD programming to cable operators in the United States.

Twice delayed due to technical difficulties, the launch of the $150 million Galaxy 14 will help PanAmSat work through a $600 million backlog of program delivery obligations.

HDTU discussed the role of Galaxy 14 in PanAmSat’s HDTV distribution strategy with company President and COO James Frownfelter.

HD Technology Update: How does Galaxy 14 fit into your plans to serve the demand for HDTV distribution?

James Frownfelter: We began to configure our satellites in the United States to accommodate what we thought would become a proliferation of HD programming in 2001. The cornerstone was the contract with Orbital Sciences (in Dulles, VA) for three satellites each with double the power to provide high-quality distribution of digital video. The first was Galaxy 12 in 2003. Galaxy 14 on Friday (postponed due a technical difficulty) and Galaxy 15, which will be launched later.

As we have upgraded our satellites the resulting high quality differentiated our service and allowed us to capture the majority of the HD being distributed via cable MSO distributed in the United States.

This new capacity (Galaxy 12, 14 and 15) specifically will be for distribution and not contribution.

HDTU: What are your forecasts of HD satellite demand this year and out into the future?

JF: Today, there are about 39 HD channels delivered in the United States via cable head ends. Looking at all industry projections with the continued reduction in the price of HDTV sets, most projections estimate HD channel capacity to reach 300 channels in 2008 and 2009. That’s significant incremental growth. The second quarter (of 2005) showed 10 percent growth in video, and the majority of that was driven by the need for distribution of HD in the United States.

If we go up to 300 channels, we are expecting significant growth over the next few years.

HDTU: How do new compression technologies like H.264 AVC and new satellite coding like Digital Video Broadcasting-Satellite version 2 (DVB-S2) standards play into the demand equation?

JF: It’s a complicated answer. For video distribution in the United States we are delivering in analog, MPEG-2 digital and HD. For broadcast, like ad hoc sports events, we are delivering in MPEG-4. So we are really covering the full spectrum.

What does this mean long term? Our expectation is that in time the analog will transition to digital. But as we look at that time frame we must remember that while we were one of the leaders in rolling out MPEG-2, today we still have analog customers. For our customers to make the immediate leap to MPEG-4 without having an incremental revenue stream, we don’t see that in the short term. But over the five to 10 year horizon, most distribution will be in MPEG-4 using higher compression to deliver a high quality signal in less capacity.

HDTU: What is the significance of Galaxy 14 in terms of representing a shift to a smaller spacecraft? Why is that important?

JF: PanAmSat is a huge proponent of what we call our small satellite strategy. Putting it simply, one of our problems is that there is a huge discrepancy between supply and demand. Most thought bigger was better, so they built huge satellites and put them into a single orbital slot. The problem when seen from a business and financial management perspective is typically where there is high supply and low demand, returns are low, and that causes price compression. It is the result of high capacity with a low number of customers bidding.

The small satellite strategy says 80 percent of what’s built will be smaller to meet the requirements of a given customer set — to meet the demands of that market. From a financial standpoint, marry the satellite more closely to the customer profile and get a maximum return on investment.

The other advantage from a station operation perspective is that small satellites are more reliable than other satellites. They are easier to build and have a track record of being delivered on schedule. And they are more reliable than the larger satellites. In terms of managing a business, smaller satellites make a lot more sense.